Heelys lowers Q3 guidance
Heelys, Inc. (Nasdaq: HLYS) lowered its expectations for its third-quarter results after Wednesday’s close due to inventory build up as a result of a languishing retail environment, sending shares tumbling to a 52-week low.
For the third quarter ended Sept. 30, the designer of wheeled footwear said it now expects earnings per share to be in the range of $0.22 to $0.23, compared with previous guidance of $0.28 to $0.30 per share. Six analysts polled by Thomson Financial were forecasting earnings of $ 0.29 per share.
The small cap currently expects net sales to be approximately $49 million compared with its previous guidance range of $55 million to $58 million. The consensus of three analysts polled by Thomson Financial was for revenues of $ 56.21 million.
Specifically, Heelys attributed its new guidance to a greater-than-projected amount of inventory on hand due to higher-than-anticipated order cancellations as a result of a “difficult retail environment.” The increased inventory coupled with increased national advertising and additional markdowns to move the inventory cut into the designer’s top and bottom lines.
“Effects of greater-than-anticipated markdowns [used to try to move inventory] in the third quarter will spill into the fourth quarter,” Brean Murray & Carret analyst David Myers.
Looking into the fourth quarter, Myers said he thinks the languid retail environment will continue to take a toll on the company in the fourth quarter. “Their large presence in mall-based retailers is hurting them because that’s where the pressure is the worst,” said Myers. “[Heelys] might get more at-once business, but that will be more than offset by order cancellations.”
Myers reduced his fourth quarter and 2008 full year earnings estimates on expected continued pressure from the retail environment especially in malls. For the fourth quarter, the analyst lowered his earnings estimate to $0.11 from $0.14, while he lowered his 2008 full year estimate to $1.18 from $1.30. The mean estimates of six analysts surveyed by Thomson Financial are $0.13 per share for the fourth quarter and $1.26 per share for 2008.
Heelys plans to launch into 285 Shoe Carnival stores by the holiday season and enter Famous Footwear stores next year, which Myers says will help. However, given that Famous Footwear is a mid-tier store, Meyers says Heelys will need to differentiate its product offering through styling, putting its fashion forward products in stores such as Footlocker.
Shares of Heelys (HLYS) toppled 11.63%, or $0.98, to $7.45 at 10:51 a.m. ET. Shares of Heelys have been trading in the range of $7 to $40.09 for the past 52 weeks.
