Heelys Is Skating Downhill

| About: Heelys, Inc. (HLYS)

I consider myself to be a person with an optimistic outlook on life. So what I am about to tell you could come as a shock to those of you used to my sunny disposition. Here it is ... are you sitting down? Heely's (NASDAQ:HLYS) is going to skate downhill! Why? How do I know this? Do I have a magic ball, fancy charting software, mathematical know-how? Nope. I have insider knowledge ... I have kids.

Here is what is being said about HLYS on Google finance:

Heelys, Inc. (Heelys) is a designer, marketer and distributor of action sports-inspired products under the HEELYS brand. The Company's primary product, HEELYS-wheeled footwear, is dual-purpose footwear that incorporates a removable wheel in the heel. HEELYS-wheeled footwear allows the user to seamlessly transition from walking or running to skating by shifting weight to the heel. Users can transform HEELYS-wheeled footwear into street footwear by removing the wheel. During the year ended December 31, 2005, approximately 95% of Heelys' net sales were derived from the sale of its HEELYS-wheeled footwear. The Company also sells branded accessories, such as replacement wheels, helmets and other protective gear.

Now...let me tell you a true story and let you in on my insider knowledge.

Recently, I was invited to a holiday dinner. The host and hostess had children present, my daughter was there, the other guests brought their kids. It was a fun, loud, exciting evening with a Secret Santa and a very delicious dinner!

I knew about HLYS and had my own negative thoughts on them prior to attending this party. During dinner conversation, yours truly, having a one-track mind, without mentioning my own thoughts on it, broached the subject of Heely's recent IPO and asked the adults what their opinion was on HLYS. This is what they said:

"Oh gosh! They're expensive and the kids only used 'em for a coupla days!"

"You have to go to Nordie's [Nordstrom] to get them, and you know what that means! If you are buying something from Nordstrom for a kid, you know it's a dog!"

"I bought my son a pair. He doesn't even use them any more."

"I saw someone in Safeway on those things. Isn't that against the law? Damn brat ran into me!"

Then the conversation turned to the good ole days of rollerblades and skateboards. Mainly about how you can't order fast food from the fast food joints going through the drive-thru when you are on wheels. [My own son tried that once.] A lot of college memories. Talk of the stupidest criminals robbing a liquor store at night and running off in those shoes that light up when they hit the ground! And that was it on the adult talk of HLYS.

So, acting on behalf of my MIA Intern, and in the name of DD, I called all the kids in from the room where they were playing air hockey, and asked them about HLYS. They glanced nervously over at their parents, and after I got approval from their parents, I told them it was OK to just tell me the truth about what they thought about Heely's.

This is what I managed to get out of them:

"I have some. Well, I know where ONE is...I lost the other one. It's layin' around somewhere. But I don't use 'em anymore anyway"

"No one I know uses those."

"You only see third graders on 'em."

"It's really hard to use that metal thing to get the wheel out!"

"Yeah, you have to use some forked tool to scoop the wheels out and it takes too long and it's too hard."

"My ankles hurt after I wear 'em."

"They're stupid."

"I use my electric scooter if I wanna go somewhere."

"You get in trouble if you wear them to a store or the mall."

From HLYS' website:

"Putting your wheels back in is easy! Just follow the three easy steps below:

1. Align the wheel in the “wheel well” and press the axle ends down as far as you can with your thumb.

2. Make a fist and hit the wheel with the bottom of your fist to fully seat it into both axle arms.

3. Visually inspect the wheel to make sure it is seated and after putting the shoes on, stomp each heel a couple of times to check for seating.

Take a look at the HLYS video on how to use them. I just laugh and shake my head when I watch that. The portion of the video that was entitled "The Rush" really had me peeved, as it showed a guy skating to get to class [I am assuming at a college] and the Campus Security saw him, and then the guy quickly changed to shoes. I don't appreciate a company telling kids how to "evade" the law, 'cause, imo, that is what they are portraying.

And, after hearing from the kids at the holiday party, as well as getting a thorough synopsis from my own daughter who, unbeknownst to me, had actually tried them out at a friend's house, I have learned that it is not all that easy and all that quick to "change" into shoes, as that video makes it seem.

As most of you regular readers know, I always want to see a company do well, especially from the get-go. And I am all for new ideas and things that are novel, unique, and more than just a fad. But, without some changes to the design of the shoe [I here and now coin a new medical terminology - carpal tunnel of the ankle syndrome], or an additional product to go with that ankle-straining rock of a "pet rock" product, HLYS is going to skate downhill!

HLYS 10-day chart
HLYS 10-day chart