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Heelys' Skate Shoes Roll Toward IPO, but Long-Term Prospects Are Unclear
Lynn Cowan
September 13, 2006 - 3:46 p.m.
WASHINGTON (AP) - Most adults who don't have a kid in the house can be forgiven for not recognizing what the brand "Heelys" means to active young Americans.
The Carrollton, Texas, company makes an unusual product: footwear that doubles as skates. When the wearer's weight shifts to the heel, a pair of Heelys is transformed into skates by wheels concealed in the sole of the shoe.
Heelys Inc. is hoping to capitalize on its patented skate-shoes through an initial public offering of stock on the Nasdaq Stock Market in coming months. The company registered with the Securities and Exchange Commission two weeks ago to raise as much as $115 million through its IPO, an amount that could change by the time it actually finalizes the terms of its offering.
Even if adults don't have a clue what these hybrid shoes are called, they will recognize the stores where they are sold. Sporting equipment specialists such as Sports Authority and Modell's, as well as general clothing stores such as Nordstrom Inc., stock Heelys.
Heelys hasn't set its share price or the number of shares it will sell, nor has it specified a date for its IPO. Its deal follows a string of successful specialty athletic apparel companies in 2005, including Under Armour Inc. in November, Zumiez Inc. in May, and Volcom Inc. in June of that year.
Like its predecessors, Heelys is relying on fast growth to attract new investors. In 2005, its net sales increased 106 percent to $44 million from 2004. In the first six months of this year, they rose 177 percent to $44.6 million, compared with the same period in 2005. Its net income in the first six months of the year rose to $5.9 million, compared with $1.6 million a year earlier, and its gross margin stayed steady at 35 percent.
Unlike predecessor sports apparel IPOs, Heelys doesn't offer a variety of products. It focuses almost entirely on wheeled shoes, which made up 95 percent of its net sales in 2005 (it also sells helmets, protective gear and replacement wheels). The company sold 1.4 million pairs in the first six months of the year, the same amount as in all of 2005, and began using additional manufacturers in May when demand outstripped its regular manufacturer's capacity.
If the tastes of its target market of kids aged six to 14 begins to drift in another direction, Heelys is going to get hit harder by lower sales than a more-diversified apparel maker.
IPO investors this year have shown some appetite for that risk, as long as a clothing trend shows promising growth in the near term. Although not strictly an athletic apparel maker, a specialty footwear company named Crocs Inc. launched a successful debut in February, followed by a secondary offering in August.
Crocs' story bears some similarities to Heelys', though the target market for its shoes is wider, encompassing both adults and kids. Like Heelys, it makes just one type of shoe, a patented all-weather resin clog, and it has faced similar struggles in protecting its brand from copycat products on the market. Crocs' stock rose 36 percent on its first day of trading, hit several months of volatility in the spring, and is now up 40 percent from its IPO price.
"Wall Street likes pure plays, but they do get concerned if it's too much of a one-trick pony," says Tom Taulli, a professor at the University of Southern California and the author of "Investing in IPOs."
"Heelys is in the youth market and activewear market, so it can grow for at least a couple of years," Taulli said. "For IPO investors, if they can get a year of growth out of it, that's probably all they're looking for; for longer-term investors, there are probably some questions about how sustainable it can be."
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Heelys' Skate Shoes Roll Toward IPO, but Long-Term Prospects Are Unclear
Lynn Cowan
September 13, 2006 - 3:46 p.m.
WASHINGTON (AP) - Most adults who don't have a kid in the house can be forgiven for not recognizing what the brand "Heelys" means to active young Americans.
The Carrollton, Texas, company makes an unusual product: footwear that doubles as skates. When the wearer's weight shifts to the heel, a pair of Heelys is transformed into skates by wheels concealed in the sole of the shoe.
Heelys Inc. is hoping to capitalize on its patented skate-shoes through an initial public offering of stock on the Nasdaq Stock Market in coming months. The company registered with the Securities and Exchange Commission two weeks ago to raise as much as $115 million through its IPO, an amount that could change by the time it actually finalizes the terms of its offering.
Even if adults don't have a clue what these hybrid shoes are called, they will recognize the stores where they are sold. Sporting equipment specialists such as Sports Authority and Modell's, as well as general clothing stores such as Nordstrom Inc., stock Heelys.
Heelys hasn't set its share price or the number of shares it will sell, nor has it specified a date for its IPO. Its deal follows a string of successful specialty athletic apparel companies in 2005, including Under Armour Inc. in November, Zumiez Inc. in May, and Volcom Inc. in June of that year.
Like its predecessors, Heelys is relying on fast growth to attract new investors. In 2005, its net sales increased 106 percent to $44 million from 2004. In the first six months of this year, they rose 177 percent to $44.6 million, compared with the same period in 2005. Its net income in the first six months of the year rose to $5.9 million, compared with $1.6 million a year earlier, and its gross margin stayed steady at 35 percent.
Unlike predecessor sports apparel IPOs, Heelys doesn't offer a variety of products. It focuses almost entirely on wheeled shoes, which made up 95 percent of its net sales in 2005 (it also sells helmets, protective gear and replacement wheels). The company sold 1.4 million pairs in the first six months of the year, the same amount as in all of 2005, and began using additional manufacturers in May when demand outstripped its regular manufacturer's capacity.
If the tastes of its target market of kids aged six to 14 begins to drift in another direction, Heelys is going to get hit harder by lower sales than a more-diversified apparel maker.
IPO investors this year have shown some appetite for that risk, as long as a clothing trend shows promising growth in the near term. Although not strictly an athletic apparel maker, a specialty footwear company named Crocs Inc. launched a successful debut in February, followed by a secondary offering in August.
Crocs' story bears some similarities to Heelys', though the target market for its shoes is wider, encompassing both adults and kids. Like Heelys, it makes just one type of shoe, a patented all-weather resin clog, and it has faced similar struggles in protecting its brand from copycat products on the market. Crocs' stock rose 36 percent on its first day of trading, hit several months of volatility in the spring, and is now up 40 percent from its IPO price.
"Wall Street likes pure plays, but they do get concerned if it's too much of a one-trick pony," says Tom Taulli, a professor at the University of Southern California and the author of "Investing in IPOs."
"Heelys is in the youth market and activewear market, so it can grow for at least a couple of years," Taulli said. "For IPO investors, if they can get a year of growth out of it, that's probably all they're looking for; for longer-term investors, there are probably some questions about how sustainable it can be."
