Already hot with kids, Heelys Inc and its wheeled shoes are skating toward investors giddy about the company's initial public offering Heelys has a runaway hit with its patented footwear, which conceals a wheel in each heel that allows the wearer to skate by angling their toes skyward.
Even before the holiday shopping season, net sales for the Carrollton, Texas-based company this year are already twice the level of all of 2005, which had doubled from 2004. The popularity of the shoes should lead to a strong opening day on the stock market for Heelys, said Ben Holmes, publisher of Morningnotes.com, an independent research firm based in Boulder, Colorado. "A lot of parents who have not heard of Heelys certainly will by the time they finish their shopping," Holmes said.
The Heelys float, on track for next Thursday, is arriving in a lively period for IPOs. Last month, companies offered $8 billion in shares in US IPOs, marking the biggest month since June 2001 and the best November since 1999, according to datatracker Dealogic.
Heelys is expected to repeat the IPO success of Crocs Inc, which has its own uniquely designed footwear, and other apparel companies, such as Under Armour, said Linda Killian, portfolio manager of IPO Plus Fund, a mutual fund advised by Renaissance Capital.
Athletic apparel maker Under Armor almost doubled in its 2005 market debut, closing its first day up almost 95 percent at $25.30. The shares closed on Friday at $46.38. Crocs, whose brightly coloured rubber clogs have been a hit, especially with kids, floated its shares on the Nasdaq in February and saw them soar 30 percent from a $21 IPO price on the first day. The stock closed on Friday at $41.74.
Under Armour trades at almost 59 times earnings while Crocs trades at about 28 times earnings, based on Reuters Estimates. At a $17 share price, the midpoint of its forecast range, Heelys would trade at about 19.5 times annualised earnings and the company would be valued at $460 million.
"Investors have been waiting for a retail apparel deal like this," Killian said. "Heelys is going to do spectacularly well, largely because this is a product that is extraordinarily popular." However, Crocs, which advertised with the slogan "ugly can be beautiful," broadened its offerings to grow from cult hit in its home state of Colorado to a brand with a wider following, said John Shanley, senior analyst at New York-based Susquehanna Financial. "Crocs appeals to both young girls and older women, which is unusual," Shanley said.
Heelys is riding the popularity of the wheeled shoes with little else to offer and will need to add product offerings to maintain its skyrocketing sales growth, Shanley said. In 2005 and the first nine months of this year, Heelys generated about 95 percent and 99 percent of net sales from the shoes, according to IPO documents filed with the Securities and Exchange Commission.
The company also needs to expand its market beyond young boys, who tend to move from one fad to the next, Shanley said. "The real issue for investors is sustainability," he said. "When a product like that falls out of favour, there is no bottom to it."
Heelys will use some of the IPO proceeds for product development, and repaying debt, according to the SEC filings. Investors must decide whether the company's focus on its one strong product will become its Achilles' heel, said Jeff Mintz, an analyst at Wedbush Morgan Securities. "To grow, a company needs to find additional products to sell," he said.