Heelys' revenues fell by 5.7 percent to $8.3 million in the second quarter. They grew by 22.7 percent to $2.7 million in the U.S., but they were off by 15 percent in the rest of the world in spite of significantly higher sales in Italy and higher shipments to the company's Russian distributor.
The management is bullish about the brand's recovery in the U.S., where it hopes to have a presence in 2,100 to 2,400 stores by Christmas, up from about 1,500 a year earlier. It says new models such as the Wave, Straight Up and Double Threat are moving very well. On the other hand, the latest quarterly increase was partly due to a delay in the shipment of orders worth $325,000 that should have been delivered in the first quarter.
Outside the U.S., sales went down in Japan, France and Germany. In Japan, the earthquake and tsunami in March hurt consumer spending, but retailers there indicated that a recovery is likely in the fourth quarter of this year. Heelys' business in Japan was also affected by changes in buying patterns due to the transition to a directly controlled sales operation in that country.
The company's consolidated gross margin rose to 46.9 percent in the quarter from 42.2 percent a year ago, thanks to changes in the procurement process made in the second half of 2010, offset by the rising value of the euro. Operating expenses increased, however, because of the new Japanese office, higher commissions paid in Italy and higher advertising expenditures in Europe.
Heelys had a loss of $973,000 for the second quarter, compared with net income of $473,000 in the same period a year ago, when it benefited from the favorable settlement of a patent and trademark lawsuit. As of June 30, the company still had combined cash and investments worth $61.7 million.